"why privacy" revisited

[Wei Dai <weidai@eskimo.com>]

The question "why privacy" has at least two different meanings.  The first
one, "why do you value privacy for yourself" has a fairly obvious answer.
Privacy implies control over one's personal information, and more control
is clearly preferable to less.  But the question also has a second
meaning, "why do you think everyone should have more privacy?"  The answer
to this question is not so obvious.  Just because each individual wants
more privacy for himself, it doesn't follow that everyone will be better
off when everyone has more privacy.

Cypherpunks accept the idea that the widespread deployment of cryptography
will increase privacy for everyone (or at least everyone who owns a
computer and an Internet link).  They also argue that this is a good
thing.  The reason most often cited is that privacy serves as a barrier
for coercion.  But privacy is also a barrier to almost every other kind of
social relationship.  For example, economists recognize that many market
failures/inefficiencies are caused by information asymmetries (i.e., the
fact that in a potential exchange one party has more information about the
exchange than the other.  The canonical example for this is the used car
market.)  Increased privacy would seem to only exacerbate these problems.

What arguments can be made that the benefits of increased privacy outweigh
its costs, considered for society as a whole?